Starbucks

Company History

Starbucks was opened its first coffee company in Seattle’s Pike place Market on 1971. The name was taken from the first mate in Herman Melville’s Moby Dick (Company Profile, 2005).

Products

Beverages:         Brewed coffees, Italian-style espresso, cold blended beverages, roasted whole bean coffees, tea products, fruit juice, sodas, and coffee liqueur.

Food:                Sandwich, Salads, pastries and ice creams

Non food items:        Mugs, Travel tumblers, coffeemakers, coffee grinders, storage containers, compact discs, games, seasonal novelty items, Starbucks card, media bar.

International Business Development

In order to achieve Starbucks mission to be a global company, the development strategy that Starbucks implemented to adapt with variety market and local need are: joint ventures, licenses and company owned operation (Starbucks Corporation, 2005).

There are 4,666 Starbucks stores which are operated and 2,222 are licensed operation in US which are spread out in 50 states. For the international location, Starbucks’ store can be found in 34 countries outside of the United States and  1,049 stores are company owned operated in Australia, Canada, China, Germany, Singapore, Thailand and the U.K. and 1,734 are joint ventures and licensed operation (Company Fact Sheet, 2005).

Starbucks goes International

  1. Starbucks open in Tokyo, Japan. Nowadays, there are more than 500 retails shops in Japan. Furthermore, Starbucks also open in Hawaii and Singapore.
  2. Starbucks open in Philippines
  3. Starbucks open in U.K., Taiwan, Thailand, New Zealand and Malaysia.
  4. Starbucks open in Beijing, Kuwait, South Korea and Lebanon.
  5. Starbucks open in United Arab Emirates, Honking, Shanghai, Australia, Qatar, Saudi Arabia and Bahrain.
  6. Starbucks open in Switzerland and Austria.
  7. Starbucks open in Oman, Germany, Spain, Mexico, Puerto Rico, Southern China, Macao and Shenzhen, Greece and Indonesia.
  8. Starbucks open in Turkey, Peru, Chile and Cyprus.
  9. Expansion to France
  10. The latest expansion in Jordan

Expand market into China

When did it enter into China?

In 1971, Starbucks opened its first coffee shop at Seattle. Since then, more and more coffee stores scattered across the United States and Canada. The serious problem which Starbucks faced to was saturated home market. In 1996, therefore, Starbucks expended its retail business to overseas, with new locations in Japan, Hawaii, and Singapore orderly, while keeping increase of profit in its home market (Qin, 2004).

Where did it choose first? And then where?

It was until 1999 that the first Starbucks entered into Beijing, China. After that, it opened around 165 outlets in several big cities in this country, such as Beijing, Shanghai, Guangzhou, Hong Kong and so on.

Why choose China as target market?

China, after the United State, will be expected to become the second largest coffee-consuming country, which has approximately 1.3 million potential consumers. Urban consumers are recognized as one of main coffee-consuming peers in China It is because that most of them have conception of Western culture by the media, such as TV programs, and accept it easier than person in the suburbs, where is poor and lack of communications. It appeals to the huge number of expatriate living in China. It is reported that Westerners and businessmen from Hong Kong and Taiwan represent 30% of customers at chained cafés such as Starbucks (Carter, 2004). Moreover, a perspective growth in production of coffee beans in China appealed to Starbucks’ investment. Since 1988, when a project of coffee growing area began in Yunnan province, the production growth of coffee beans has increased rapidly. In 1995, it reached 4,000 hectares and more than doubled by the end of 1998 (Dharmananda, 2005). The United States Department of Agriculture (USDA) reports that China produced a modest figure of 3,573 tones of coffee beans in 1997 this figure had risen to 13,000 tones by 2001 (Lee, 2004). It means that domestic market in China can supply abundant coffee beans, besides importing from the United States. Besides, rapid growth of economy in China is one of aspects to which Starbucks paid much attention. Although China is still among the developing countries with a relatively low per capita income, it has had tremendous economic growth since the late 1970s. According to the report of Asian Development Bank, China's growth rate for the coming 2-3 years is predicted to be 8.5 % and above (“Economy of China”, 2005). Therefore, "We believe that China has enormous growth potential," said Martin Coles, president of international operations at Starbucks (“China is Starbuck's Cup of Tea”, 2005).

Detail Analysis

SWOT Analysis

Strengths

  • The reputation of brand name and image

Strong brand name and image of Starbucks allow brand recognition and consumer retention. Therefore, the expanding of stores to other countries is easier and proficient.

  • High revenues and profits

The financial performance of company has positive aspects. The revenues of Starbucks in 2004 were $5.3 billion, growing at about 30 percent. Moreover, in 2004 there was a sharp growth in profit, at 44 percent (Investor relationships, 2005). The exponential growth in revenue and profit creates the strong financial statement and reliability to shareholders.      

  • High-skilled management team

Starbucks’ Chief executive officers (CEOs) is the professional, for example, Howard Schultz, Orin Smith and Howard Behar. These lead to the rapid and stable growth of Starbucks.

  • High technology

Starbucks brings the technology to use in the stores in order to attract more customers. For instance, there are high-speed internet, website and prepaid Starbucks card. It might be increase traffic in the stores particularly in new generation group.

  • High quality and  innovation of products

Starbucks uses high quality of coffee beans and dairy goods. Furthermore, new products are usually introduced by Starbucks including

coffee and beverage line. Both of them enable Starbucks to be able to maintain level of sales and keep competitors out.      

Weaknesses

  • High price

Since October 2004, Starbucks has increased the price due to rising  cost of production, including cost of dairy goods and cost of rent. The increase of price might have an effect on the falling of sales and customer retention directly

  • Clusters of store

Because Starbucks has a lot of stores and also these are located in closed areas, it leads to the scramble of customers in each store. Clusters of store might cause inefficient performance of the company.  

Opportunities

  • Large consumer group

China has the biggest world’s population. Coffee drinking is more               popular among young generation, especially those who have overseas education, which influences the coffee consumption. Many of these teenagers have lived in western countries for a long time and they have familiar with the coffee culture. When returning to China they have carried on living in this fashion. Chinese teenagers also like to choose western style coffee shops as their favorite place.

  • China’s open-door policy of economy and society

China has high growth economy that has attracted substantial foreign direct investments, which has led to rapid increase in the number of foreign investors. The reduction of import tariffs on coffee will also encourage foreign investment in coffee. The entry barrier for opening a single specialty coffee store in China is low. As a result, China has enormous growth potentially.

  • Lifestyle
    Modern lifestyle of Chinese teenagers and adults supports the proliferation of western coffee shops. Meeting and discussing business in a warm and nicely designed coffee shop have become more popular in China. Consequently, the teahouse’s domination has been challenged by the foreign coffee house.

Threats

  • Competitors
    The global coffee market is a very competitive sector. Starbucks is facing the increase of competitions from other foreign players. The latest Starbucks’ competitor is Canadian chain Blenz Coffee, which plans to open a string of café in China where consumers can smoke, while Starbucks is non smoke stores.
  • Intellectual-property violation

Starbucks filed a lawsuit for trademark infringement against Shanghai Xingbake which signs, logos and names similar to Starbucks. It would seem that chances of consumer confusion are high.

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PEST Analysis

Political Factors

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. It must be considered issues such as: China has offered a favorable investment environment for the investors from all over the world to invest, manufacture and manage.

Firstly, China's political situation was stable and the people lived and worked in peace and contentment, which created necessary social conditions for attracting foreign investment.

Secondly, the initially established market economy system and the gradually perfected laws and rules created favorable legal environment for foreign investment. ...

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